reality-based educator

Cheap money for all!!!! Wheeeeee!!!!!!! Cheap money for everybody!!!!!!! Wheeeeee!!!!!!!!!!!

Bernanke lowered the Fed's benchmark interest rate to 4.75% and the discount window rate to 5.25%.

Wall Street roared with approval. The Dow ended up more than 335 points, the Nasdaq was up 70 and the S&P closed up 43.

In the Fed's statement, Bernanke said recession concerns trumped inflationary pressures and warranted the huge rate cuts, though the Fed says it will continue to monitor inflation developments carefully.

Meanwhile U.S. crude closed at $81.50 and is over $82 a barrel in extended hours trading.

Gold futures climbed to $730.50 an ounce for December - a 25 year high.

The dollar dropped to a new record low against the Euro and a fresh 30 year low against the Canadian dollar. It fell against most other major currencies.

Bonddad says the Fed clearly is spooked:

Until August 7, the Fed was primarily concerned about inflation. However, even at that meeting the Fed observed:

"Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy."

So even at that meeting, the Fed thought growth would be OK. That was a month and a half ago. In a month and a half the enough things have gone wrong to warrant a 50 BP cut. And even then, the Fed is still concerned about inflation.

In other words, enough indicators have turned negative in the last month and a half to warrant exposing the economy to a higher-inflation monetary policy even at a time when the Fed is concerned about increasing inflation.

Barry at The Big Picture notes that after today's rate cuts, the Fed now has three problems

1. Recession concerns
2. Inflationary concerns
3. They have become Wall Street's bitch.

That last one's a real good point.